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Russia's first year in the WTO marred by ructions

Russia has made few friends during its first year in the WTO. The country has ruffled the feathers of numerous trade partners with its subsidies for domestic industries and restrictions on foreign goods.

No one in the World Trade Organization is really in the mood to celebrate Russia's accession, including Russia itself. The country still does not really know whether or not joining the World Trade Organization is good or bad for its economy. And its trading partners can barely hide their disappointment over its membership.

"Russia is doing exactly the opposite of what it was supposed to do," said EU Trade Commissioner Karel De Gucht in 2012. De Gucht's remark related to Russia's introduction of a recycling fee on imported cars, a move that the country took just days after joining the WTO.

Official complaint

At the beginning of July 2013, Brussels lodged an official complaint with the WTO. Under current law, both parties have 60 days to settle the dispute. If Russia cannot strike a deal with the EU during this period, Brussels could ask the WTO to adjudicate. In that case, Moscow could be forced to change its rules or face trade sanctions.

The EU's De Gucht is not happy with Russia

In 1986, the former USSR sought observer status in the General Agreement on Tariffs and Trade (GATT) organization, the predecessor to the WTO. Accession negotiations began officially in 1993. Russia needed 19 years to finally join the WTO, becoming the trade organization's 156th member.

"For years, Russia's political elite had no consensus on the WTO, with views varying widely," says Simon Evenett, an economics professor at the University of St. Gallen in Switzerland." And the accession process was either accelerated or slowed down depending on who was in power."

In addition, negotiations with the WTO are not a one-sided process in which an acceding nation must accept WTO rules for the long term. "In Russia's case, WTO rules on intellectual property rights and on recognizing the WTO as the court were among the topics that prolonged the process," says Rainer Linder with the Committee on Eastern European Economic Relations. Russia, he adds, had been reluctant to accept these and other provisions.

Car levies rile EU

One year after joining the WTO, Russia still appears to be on the outside. The country has taken advantage of various exemptions and transition periods. For 25 domestic industries, it has sought various measures to protect its own economic interests. But for many of its trading partners, those moves are a sore point and a source of growing conflict.

A battle is brewing in the auto industry, for instance. Although Russia has lowered duties on car imports since joining the WTO, the country has cleverly imposed a recycling fee on those imports aimed at compensating for the lower duties.

According to the EU, the fees range between 420 and 2,700 euros for new cars and between 2,600 and 17,200 euros for used cars. Those fees are disproportionately high, argue EU critics, pointing to the 37-euro recycling fee in the Netherlands.

Lindner: Russia's behavior is not 'WTO compliant'

Cars and car parts are among the main EU exports to Russia, accounting for about 10 billion euros in annual revenue. Since the introduction of the recycling fee in September 2012, EU exports have dropped by 7 percent - although the Russian car market is growing. German auto giant Volkswagen, for instance, reported a 5 percent drop in Russian sales in the first half of 2013.

"This is not WTO-compliant behavior," says Lindner. And Evenett also warns Russia. "The other WTO members expect Russia to play by the WTO rules," he says. "Russia needs to take this seriously because if it doesn't, many sanctions will follow." The EU complaint, he adds, is a warning signal.

The recycling fee on cars isn't the first incident that has caused a stir among Russia's trading partners. Because of a change in hygiene regulations, refrigerated meat from the EU, US and Canada can no longer be imported. As a result, pork exports to Russia from Germany dropped by one third in the first quarter of 2013. And that is just one example.

Long-term consequences

Russia has so far been able to dodge another fight. In mid-August, the country postponed new rules for cross-border truck traffic. The rules, which call for additional financial guarantees and truck escorts, will add to costs and bureaucracy, logistics companies argue.

Russia now plans to introduce the new laws on September 14. And when they take effect, lines of trucks at Russian borders will likely become a familiar view - as they were when Russia introduced special border controls in 2008.

According to the Russian public opinion research institute Levada, 59 percent of Russians polled in 2003 felt that joining the WTO was in Russia's interest. By 2012, only 44 percent felt this way.

Popular support is waning, although some experts say it is still too early to speculate on the consequences of accession after the first year. Three to five years are needed to determine long-term consequences, they argue.

A dispute is raging over a new car-recycling fee

In the long run, however, many experts see positive effects. "Russia will benefit from its accession to the WTO because it will accept the organization's principles of fairness, non-discrimination and transparency in its own rules and regulations," says economics professor Evenett. The country's economic environment, he adds, will also improve "from its domestic industry becoming more competitive."

This will take some time, though. Russia, experts agree, will inevitably have to adjust to WTO rules, and that could be an advantage for its trading partners. "The German economy alone would be relieved of about 1 billion euros as a result of the lower custom duties agreed with Russia as part of its accession package," says Lindner. "But, of course, this is only the case if the lowered duties on the one hand aren't replaced with protectionist measures on the other."

Russia is an important market for German products. From January through May 2013, German exports to Russia were up 1.3 percent compared with a year earlier.